Under the Swan Company's Cafeteria Plan,all Full-Time Employees Are Allowed

question 17

Multiple Choice

Under the Swan Company's cafeteria plan,all full-time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

• A) Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000.
• B) Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him. Paul is not required to include the $8,000 in gross income.
• C) Sue, a full-time employee, elects to receive choices I, II and $3,200 for III. Sue is required to include $3,200 in gross income.
• D) All of the above.
• E) None of the above.

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Definitions:

Prepaid Insurance

An asset account on the balance sheet representing insurance premiums that have been paid in advance and have not yet expired.

Supplies

Materials and items that are used in the day-to-day operations of a business, not directly tied to a finished product.

Liability

A financial obligation or debt that an entity owes to another party, which is expected to be paid in the future.

Unearned Revenue

Money received by a company for goods or services yet to be provided, recognized as a liability until the service or product is delivered.